MAR-2-05 CO:R:C:V 733196 KG
Mr. Fred Sly
O-Ratchet, Inc.
1362 Exchange Drive
Richardson, Texas 75085-0296
RE: Country of origin marking of imported ratchet handle;
substantial transformation; forging; 19 CFR 134.35.
Dear Mr. Sly:
This is in response to your letters of March 9, and July 16,
1990, requesting a country of origin ruling regarding imported
forgings to be used in the manufacture of ratchets.
FACTS:
The forging will be made in Korea or Taiwan. The imported
forging has the general shape of a ratchet handle. The
processes done in the U.S. include: machining, cleaning,
polishing, marking, heat treatment, vibratory polish, cleaning,
muratic acid bath, rinse, nickel plate, rinse, chrome plate, and
rinse. Heat treatment is required for the metal to be adequate
with regard to strength. Plating is necessary to prevent
rusting. The completed ratchet handle then has to have the
following components or parts added to it in the U.S. in order to
be used: the inner body, pawl, reverser, pawl pin, spring, ball,
and two retaining rings.
The cost of the forging overseas is $1.89 while the cost of
the U.S. processing is $1.21. The cost of the other U.S.-made
ratchet parts is $2.70. The reverser, which is made in Taiwan,
costs $0.18.
ISSUE:
Whether the imported rough forging is substantially
transformed in the U.S. and therefore, is excepted from
individual country of origin marking.
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304), provides that, unless excepted, every article of foreign
origin imported into the U.S. shall be marked in a conspicuous
place as legibly, indelibly, and permanently as the nature of the
article (or container) will permit, in such a manner as to
indicate to the ultimate purchaser in the U.S. the English name
of the country of origin of the article. The Court of
International Trade stated in Koru North America v. United
States, 701 F.Supp. 229, 12 CIT (CIT 1988), that: "In
ascertaining what constitutes the country of origin under the
marking statute, a court must look at the sense in which the term
is used in the statute, giving reference to the purpose of the
particular legislation involved. The purpose of the marking
statute is outlined in United States v. Friedlaender & Co., 27
CCPA 297 at 302, C.A.D. 104 (1940), where the court stated that:
"Congress intended that the ultimate purchaser should be able to
know by an inspection of the marking on the imported goods the
country of which the goods is the product. The evident purpose
is to mark the goods so that at the time of purchase the ultimate
purchaser may, by knowing where the goods were produced, be able
to buy or refuse to buy them, if such marking should influence
his will."
Part 134, Customs Regulations (19 CFR Part 134), implements
the country of origin marking requirements and exceptions of 19
U.S.C. 1304. An ultimate purchaser is defined in section 134.1,
Customs Regulations (19 CFR 134.1), as "generally the last
person in the United States who will receive the article in the
form in which it was imported." The regulation further provides
that if an imported article will be used in manufacture, the
manufacturer may be the ultimate purchaser if he subjects the
imported article to a process which results in a substantial
transformation.
Under section 134.35, Customs Regulations (19 CFR 134.35),
an imported article that is substantially transformed in the U.S.
is excepted from individual country of origin marking and only
the outermost containers of the imported article must be marked
with the country of origin. An article is described in U.S. v.
Gibson-Thomsen Company, Inc., 27 CCPA 267 (1940), as being
substantially transformed because it is "so processed in the U.S.
that it loses its identity in a tariff sense and becomes an
integral part of a new article having a new name, character and
use."
Imported rough forgings made into flanges and fittings in
the U.S. were found to be substantially transformed in the U.S.
in Midwood Industries, Inc. v. United States, 64 Cust.Ct. 499,
313 F.Supp. 951 (1970). In that case, the court pointed out
that the rough forgings have no commercial use in their imported
condition because the forgings are used to connect pipes of a
matching size and in their imported state, the forgings had no
connecting ends.
In HQ 731572 (July 25, 1989), Customs held that imported
rough forgings made into sockets, socket wrench extensions and
adapters in the U.S. were substantially transformed. The
domestic processing included: lathing, drilling, centerless
grinding, marking, heat treatment, performing hardness and torque
strength testing, sand blasting, tumbling, chemical vibrating,
acid dipping, plating, painting and quality control testing. The
rough forgings were considered substantially transformed because
a significant amount of machining was done which included
machining to achieve the actual dimensions of the tools.
Customs ruled in HQ 732487 (September 20, 1989), that an
imported rough forging made into a wrench in the U.S. was
substantially transformed. The processes involved in the U.S.
included: coining, shot blasting, polishing, grinding, stamping,
tempering, chrome plating and calibrating both ends of the
wrench. The U.S. processing constituted 55-60% of the total cost
of the finished wrench.
Raw forgings for automotive master cylinders and automotive
wheel cylinder castings were held to be substantially transformed
in HQ 730123 (February 5, 1990). In that ruling, Customs pointed
out that the imported parts were subjected to a substantial
processing which included: drilling, boring, reaming, tapping and
assembly with other U.S.-made parts and which was costly and
complex. The imported master cylinder casting is 25.5 % of the
finished product and the imported wheel cylinder casting is
15.8%.
In this case, the cost of the U.S.-made parts added in the
U.S. is nearly 50% of the finished product. When added with the
cost of the U.S. processing, nearly 70% of the manufacturing cost
of making this product are for either U.S. processing or for
U.S.-made parts which are added to the forging to complete the
product. The processing done in the U.S. includes machining, and
nickel and chrome plating. While no details were provided
concerning the extent of the machining operations performed in
the U.S., the processing done in the U.S. considered along with
the number and value of U.S.-made parts attached to the finished
product, particularly the pawl, constitute a substantial
transformation of the imported forging. A ratchet is a piece of
machinery which consists of a wheel or a bar with which a pawl
engages. A pawl is a pivoted object adapted to engage with the
teeth of a ratchet wheel or the like so as to prevent or impart
motion. The imported forging involved here is made to hold the
pawl. It clearly does not become a ratchet until the pawl is
attached to it. In the case, the pawl is made in the U.S. and
attached to the ratchet handle in the U.S. The characteristics
of the pawl and the parts used to hold the pawl in place so it is
functional, which are all U.S.-made, are the very essence of the
finished product. Based on all the above considerations, this
forging is considered substantially transformed in the U.S. into
a ratchet, a new and different article of commerce with a new
name, character and use.
HOLDING:
The imported forging is substantially transformed in the
U.S. Pursuant to 19 CFR 134.35, the U.S. manufacturer is
considered the ultimate purchaser of the forging. Therefore,
only the container in which the forgings are imported are
required to be marked with the country of origin of the forging.
Sincerely,
Marvin M. Amernick
Chief, Value, Special Programs
and Admissibility Branch